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FMOC TRADE

Method To My Madness. FMOC TRADE. Overview. Two options strategies for trading the FMOC on 08/12/09 First, a DITM (deep in the money) plan Second, an OTM (out of the money) plan. Deciding What To Buy. I chose to trade the SPY for this exercise. The SPY closely tracks the S&P 500.

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FMOC TRADE

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  1. Method To My Madness FMOC TRADE

  2. Overview • Two options strategies for trading the FMOC on 08/12/09 • First, a DITM (deep in the money) plan • Second, an OTM (out of the money) plan

  3. Deciding What To Buy • I chose to trade the SPY for this exercise. The SPY closely tracks the S&P 500. • Next the projected price movement must be determined. I decided to look at the previous FMOC meeting results for this year. • Lastly the strike price for the option you are considering must be selected.

  4. How Much Will It Move? 06/24/09 03/18/09 08/12/09 04/29/09 FMOC meeting dates this year

  5. How Much Did It Move after the January FMOC meeting? FMOC on 01/28/09 (not shown) SPY opened on 01/27/09 @ 84.13 On 01/28/09 the high was 87.96 Total difference 3.83

  6. How Much Did It Move After March Meeting? On 03/17/09 the Spy opened At 76.07 On 03/18/09 the Spy made A high of 80.90 Total between the day before FMOC open and announcement Day high was 4.83 06/24/09 03/18/09 08/12/09

  7. How Much Did It Move After April Meeting? On the open the day before The April meeting Spy opened At 84.97 On announcement day 04/29/09 The high was 88.36 The total difference was 3.39 04/29/09

  8. How Much Did It Move After June Meeting? 06/24/09 June was a little different The open on 06/23/09 was 89.47 The high on 06/29 was 91.08 For a difference of only 1.61 On the next day the high Was 92.17 for total of 2.70 But market was trending down

  9. So How Much Do We Expect SPY To Move • The average movement from the open on the day before FMOC meeting to the high price the day of the meeting is 3.42 • Current media chatter and economic data point to Fed stating “recovery is near” • SPY has been in an up trend • 2.50 seems like safe bet 3.50 little more risky

  10. DITM Option • For the DITM option we found the 90.00 dollar strike has plenty of open interest and a delta over 90. So we bought 10 contracts at 10.50 each on 08/11/09 (the day before announcement) We expect we should have enough movement to sell at 13.00 dollars per share

  11. OTM Option • For the OTM option we bought the 104 strike. The stock price was 100.54. If price moves 3.50 then it will be in the money and price will be much higher. This is more risky but much cheaper to enter into. We bought 10, 104 strike calls for .34 each. Using the options price calculator we expect to sell for 1.34e.

  12. So What Happened • The open price on the day before announcement was 100.54. • The high the next day was only 101.56 for a total of only a meager 1.02 • The next day did not help much either. The high was only 100.61 or 1.07 • It is possible that there was just not enough conviction to send the price above resistance

  13. Current Totals • Yesterday SPY closed at 100.79 • The DITM has a bid of 10.95, ask of 11.25, with a high of 11.83. If get out now, we will close with a profit of around .50 per share or 500.00 dollars • The OTM has a bid of .17, ask of .20, with a high of about .46. If we close now we will take a loss of around .16 per share or 160.00

  14. So, Ride It, Roll It, or Close It?

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